Forget Bubble, Try Boom

Red Soap BubbleA “bubble” is a self-perpetuating economic state based on unrealised earnings. The web 1.0 bubble that ended in 2000 was a scary mix of stock market hype and underperforming companies that resulted in a disastrous tech crash.

Now geeks are back and “web 2.0” has been a rallying cry for the real value of web innovation and technology to come out of hiding. But not without fear; the previous bubble bursting crushed the hearts of millions of dreaming geeks around the world, and did severe financial harm to many for years after. So there’s a natural trepedation, and sometimes jealousy, that pushes forward the idea that we’re heading in the same direction again. It’s ridiculous.

This time around you can’t just yell bubble and watch the sky fall. Nobody really cares. Why? Because there is no pack of lemmings to run screaming off the cliff, aka the market. The only bubble, if you could call it that, is the level of VC investment being put at risk, and that’s a) low and b) coming from people who manage risk for a living.

In bubble 1.o investor’s money was what was being spent. That’s hollow. It’s a false economy, and a crash is inevitable. Now we have two big differences: the level of equity being invested is far lower (if you include IPO raising), and the actual revenue being earned in internet advertising (let alone other service revenues) is substantially higher, and it’s not market money.

So investments are significantly down, yet earnings are skyrocketing. $4b in the last quarter! That’ll be $22b-$30b next year. That’s bigger than the Gaming and Movies markets combined. And I don’t see any reason for growth to slow prior to reaching 40%-50% of the global ad market ($40b-$60b).

Quarterly Internet Ad Revenues Surpass $4 Billion

Get a grip people. Know a good thing when you see it. We all knew how big and amazing the internet would be. It just took 5 years longer to get the job done.

2 comments so far

  1. Chris on

    Good article.

    I personally am still hesitant to start throwing too much money or over investing in my online ventures at this point, but I have to admit it would appear that this time round most people are a lot savvier with their investments and the investments are being based on reasonable ROI expectations that are justified by previous performance rather than unrealistic expectations.

    I definitely think that recent gains in the industry are more a result of a booming online economy but I wouldn’t be surprised if there was a slow down and a possible minor correction in the next year or two – but nothing to the extent of 2000 – 2001.

  2. TechYob on

    Marty – insightful post.

    As is the case in all new markets, its often not the opportunity that is overstated but rather the time required for the eco-system to solidify around a standardised value chain that is often understaded by private equity spreadsheet jockeys.

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